‘Bar Stool Economics’ Helps Explain American Taxes

This ‘Bar Stool Economics’ story, in a very, very simplified manner, helped me to understand our tax system. I do understand that there are so many codes/laws/loopholes/deductions/brackets and other what-nots that there is NO simple way to explain ALL of our tax system, but this ‘story’ helped me see the “big picture” of how things work.

I have seen this ‘story’ floating around the internet for a few years, and, Snopes as I might, I can’t seem to find the original author of the piece. What I like about the ‘story’ is that it explains, in a laymen-termed, very simplified fashion, the way taxes work in America.

As the saying goes, “I don’t have a dog in this fight”. (I hate that saying). I am not wealthy enough to be man number 7, 8, 9 or 10, but I am fortunate enough to not be 1 – 4; I think I am right there, in the middle of the road, like most ‘average’ Americans, around number 5 or 6, so I can’t really complain about the taxes that I pay.

Please take time to read, and share!

BAR STOOL ECONOMICS

Suppose that every day, ten men go out for a beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing. The fifth would pay $1.00 The sixth would pay $3.00 The seventh would pay $7.00 The eighth would pay $12.00 The ninth would pay $18.00 The tenth man (the richest) would pay $59.00

So that’s what they decided to do. The men drank in the bar every day and seemed quite happy with arraignment, until one day, the owner threw them a curve.

“Since you are all such good customers, he said, I’m going to reduce the cost of your daily beer by $20.00. “Drinks for the ten men now cost just $80.00

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $ 20 windfall so that everyone would get there “fair share?” They realized that $ 20.00 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay! And so:

The fifth man like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now pay $5 instead of $7 (28% savings). The eighth now paid $9 instead of 12 (25% savings). The ninth now paid 14 instead of 18 (22% savings). The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before! And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20“ declared the sixth man. He pointed to the tenth man, “but he got $10!”

“Yeah, that’s right, shouted the seventh man. “why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in union. “ We didn’t I get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalist and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible

I surely would love to find someone who can explain to me why we can’t each pay the same percentage of our income in taxes. Does 15% sound fair? (What?? What do you mean “not everyone reports ALL of their income??!?!?!”)

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